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Chapter 11: Q.37 (page 292)

What are some of the ways in which exports and imports can affect the AD/AS model?

Short Answer

Expert verified

Price levels and Real GDP both rise as a result of the rightward shift.

Step by step solution

01

Introduction 

Exports- Goods and services produced in one country and sold to buyers in another are known as exports.

Import- An import is a product or service purchased in one country but made in another.

02

Explanation

Aggregate demand includes both exports and imports. Net Exports, or the difference between exports and imports, is a component of foreign commerce in an economy.

As exports or imports rise or fall, AD rises, pushing the AD curve to the right.

The aggregate demand curve shifts rightward from AD0 to AD1 in the diagram above. Price levels and Real GDP both rise as a result of the rightward shift. However, the new equilibrium is still a long way from potential GDP or full employment output levels.

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Most popular questions from this chapter

Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. If a large percentage of factories and utility companies use natural gas, what will happen to output, the price level, and employment as fracking becomes more widely used?

Suppose the Federal Reserve begins to increase the supply of money at an increasing rate. What impact would that have on GDP, unemployment, and inflation?

If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

How is pressure for inflationary price increases shown in an AD/AS model?

Economists expect that as the labor market continues to tighten going into the latter part of 2015 that workers should begin to expect wage increases in 2015 and 2016. Assuming this occurs and it was the only development in the labor market that year, how would this affect the AS curve? What if it was also accompanied by an increase in worker productivity?
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